Jan 12, 2012

Why are Car Prices So High in Malaysia?

Car buyers had before the National Automotive Policy (NAP) accepted the fact that car prices in Malaysia are one of the few things that always go up and never come down. 

Over the past few years, many had hoped that with the Asean Free Trade Area (Afta) being implemented, car prices would drop. They went up instead, dashing the hopes of many. 

It is therefore fair to say that prior to the announcement of the NAP last month, many Malaysians would have been quite happy for car prices to remain stable. To see the NAP driving the prices of mainly national cars and locally assembled cars down by up to 10% was an unexpected and pleasant surprise. 

Days after the NAP was announced on March 22, Proton Holdings Bhd slashed the prices of its cars by up to 7%. The highest discount in terms of percentage is for the Gen.2 1.6 AT H-Line model with RM4,450 in savings. Perodua also reduced its car prices by 4%. 

Locally assembled foreign cars also had their prices trimmed. Volvo Car Malaysia Sdn Bhd dropped its car prices by up to 7%, which translated into savings of about RM10,000 to RM20,000. 

So, has the recent reduction significantly closed the car price gap between Malaysia and other countries? Is it just a one-off occurrence or could prices come down further? 

The answer for the first question is "no". As for the second one, even industry players with years of experience refuse to predict the trend of car prices. 

"The car industry is policy driven, it is hard to predict if car prices will fall further," says Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad. 

Nevertheless, she says the fact that the government reduced the duties on national cars and locally assembled foreign cars is a step in the right direction to make cars more affordable to the masses. 

"Car prices in Malaysia are not the cheapest," concedes Aishah. "But it [the price reduction] is a good start." Nevertheless, one out six Malaysians can still own a car due to the easy availability of long-term loans, she adds. 

However, long-term car loans, some with repayment periods of nine years, could make cars artificially affordable in Malaysia. Any financially prudent individual would tell you that it is not wise to borrow too much money to buy a car, as its resale value always depreciates. Low monthly repayments on car loans could be easily structured by stretching the repayment period. 

A better way to assess the affordability of vehicles is by looking at the earning power of the buyers. 

According to the World Bank, the gross national income (GNI) per capita of Malaysia in 2005 was US$4,650. This means that an entry-level car, such as the Proton Savvy, costs more than twice the country's per capita GNI. A Perodua Myvi costs nearly three times the average annual income of a Malaysian. 

Car prices in countries where the car market is relatively liberalised are generally more affordable. For example, an Australian's five-month income is enough to purchase a Proton Savvy. 


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